Private equity in the Middle East: A rising contender in emerging markets

Published: July 21, 2010

Introduction: Understanding a Growing Industry

The private equity (PE) industry in the Middle East (ME) has grown remarkably quickly for an industry that barely existed a decade ago. Today, there are around 150 funds in the region, with a further 12 announced and six rumoured to be happening. In 2008, total funds raised increased to more than $6.4bn. However, PE as an asset class in the Middle East is relatively new and, on a global scale, still very small. In 2001, its share of emerging market PE was less than two per cent. By 2008, however, it accounted for 10 per cent.

Beyond the occasional mention in larger global PE surveys or specific case studies, little research or literature exists on PE in the region. Criticisms frequently levelled in commentary include limited information, lack of transparency and the general opacity of the industry.

There are a number of reasons for these characteristics. Much of the regional PE activity is driven by closed networks, resulting in restricted information flow, making available data in PE in the region a scarce commodity. Although sources such as the Zawya Private Equity Monitor compile data specific to the region, the information environment still relies heavily on informal sources.

The lack of reliable information is not only a source of frustration for analysts but may also be a factor in holding back the development of the region’s PE firms. Difficulties in obtaining accurate financial information on companies have been cited as a key problem faced by potential buyers in the region. Last year, Zawya CEO Ihsan Jawad, a board member of the Gulf Venture Capital Association, was reported as saying that transparency was a major barrier preventing PE from becoming a bigger component of the GCC’s financial system. He suggested that more research and collaboration were required to redress the current state of opacity of the sector.

This paper seeks to provide some insight into the region’s PE sector, to identify some of its key characteristics and trends and to contribute to the understanding of PE in this region. The foundation of this report is the INSEAD-Booz & Company survey of PE firms, their general partners (GPs) and their investors (limited partners- LPs) conducted in early 2010 by Booz & Company and INSEAD’s Global Private Equity Initiative (GPEI). This report also draws on Booz & Company’s and INSEAD’s experience working with leading PE firms in the region. We hope to contribute in a meaningful way to the understanding of the PE market in the Middle East.

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Private equity in the Middle East: A rising contender in emerging markets